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Thrifty Families and Other Lies
Like Their Government, Americans Live on Debt
NEW YORK--During his State of the Union address President Obama repeated this ancient canard: "We have to confront the fact that our government spends more than it takes in," he said. "That is not sustainable. Every day, families sacrifice to live within their means. They deserve a government that does the same."
Republicans have used this "families balance their budgets, so should government" line for years. Now Democrats are doing it too. Everyone is jumping aboard the pseudo-austerity bandwagon. (Why pseudo? Neither party really wants to balance the federal budget because it can only be done by bringing home the troops, shrinking the Pentagon by 90 percent, ending corporate welfare, and soaking the rich--i.e. major campaign donors--with higher taxes.)
The family budget talking point is a fascinating meme that reflects a rarely considered national blind spot. As with other cases of mass denial (we think we're generous do-gooders around the world, foreigners see us for the crazy mean torturers we also are), we give ourselves more credit than we deserve.
We Americans value thrift and personal responsibility. We believe we should live within our means. These cultural ideals stem from our Puritan history.
But we don't live up to our ideals. Not even close.
Americans are up to the ears in debt.
Four out of five individuals have at least one credit card. The average family has an outstanding balance of $10,700. It spends 21 percent of its monthly income to pay interest on that balance.
The average American family has assets: It owns a house worth $160,000. But it owes $95,000 to the bank. As the housing market continues to crash, equity shrinks.
Our average family's savings are virtually nonexistent: $3,800 in the bank, no retirement account whatsoever (for half of families, average retirement savings $35,000 for the other half), no mutual funds, no stocks, no bonds.
The claim that American families live within their means is a joke.
To be fair, it's not entirely their fault. The typical American family only earns $43,000. It's hard to buy much of anything, much less the house that embodies the American Dream, with that. And it's impossible to save.
So they/we borrow.
As grim as a life of indebted servitude may seem, imagine what the American economy would look like if families really did live within their means, spending no more than they earned. No debt. No credit.
Markets for big-ticket items--homes, automobiles, major appliances--would crash and burn. Countless businesses would go under.
According to the National Association of Realtors 23 percent of homebuyers paid cash in January. That's more than ever before but that still leaves at least 77 percent relying on mortgage financing. (Why "at least"? Most "cash" transactions include money borrowed from banks and credit unions.) Take 77 percent of purchasers out of the buy side of the equation and million-dollar homes would be worth five figures.
Pop! Credit is the biggest bubble of all.
If credit went away, most Americans' biggest asset would vanish. Everyone would be "under water" to their lenders. The burbs would soon look like Afghanistan.
The same goes for cars: At least 88 percent of buyers take out a loan.
What would happen if these buyers had to save actual cash money before they could hit the showroom? They wouldn't buy a car. Air would get cleaner but the economic collapse that began in 2008, which has put one out of five Americans out of work, would accelerate dramatically.
Two-thirds of the U.S. economy directly relies on consumer spending. People can only purchase goods and services using one of three sources: income, savings or credit. As we've seen, the average American family doesn't have savings. Its income has been falling since 1968.
That leaves credit. If consumer credit vanished, the corporato-capitalist system currently prevailing in the U.S. would deteriorate from its current, merely unsustainable form into total chaos. Without credit cards and other loans citizens would seethe, trapped between the mutually irreconcilable forces of falling wages and the aggressive advertising and marketing of products they would never be able to afford. There would only be two possible long-term outcomes: revolution, or the ruling classes would be forced to pay substantially higher wages to workers. To corporate elites, the latter choice would be too unpalatable to countenance.
The typical American family cannot live within its means because it cannot earn enough to sustain its lifestyle. Were it to downgrade its living standards to a level it could afford, there wouldn't be enough consumer spending to drive the economy. This would force further personal austerity. Eventually we'd all be living outside.
You know what's funny? Unlike the American family, the U.S. government canspend less than it earns. It can increase revenues by raising taxes. Unlike families, it spends trillions of dollars on stuff--wars--that it doesn't need and actually makes things worse.
It could even use its power to force employers to pay workers what they deserve. If the government did that, families might not need credit.
They could (finally) live within their means.
65 Comments so far
Show AllVery well written, deserves more than my comment.
Hard to comment about something that is, or at least ought to be, obvious truth. But we live in a society so perverse that it takes an "extreme leftist" to say it.
Excellent essay.
And, a whole another essay needs to be written regarding the government side of the phoney "government needs to be like a thrifty family" analogy. A better better analogy is "government needs to be like a private firm" (specifically a not-for-profit one). Do private firms try to constantly cut their gross revenue and the products and services that they provide with that revenue?
I agree! Governments are not families nor are they businesses. Governments have the power to tax and they are sovereign.
As usual Ted Rall writes a great piece.
Once again Obama is accurately compared to any other corporate lackey doing his job while seducing the masses with his soft, Milton Freidman inspired rhetoric.
"The average American family has assets: It owns a house worth $160,000. But it owes $95,000 to the bank. As the housing market continues to crash, equity shrinks."
Reversing the numbers might be more accurate.
thank you, Ted Rall!
i'll make sure to recomend this wonderful essay. i agree with corvo, "Hard to comment about something that is, or at least ought to be, obvious truth."
i think maybe "common sense"...
...is neither!
Funny (well not really!) that the budget cutters never consider the *other* family budgeting option. If you can't cut your costs, you increase your income (AKA raise taxes), especially on the rich and corporations that are paying little or nothing at present!
All that change I was supposed to believe in ended up in some fat cat corporatist pocketbook. I ain't got nothing left but a tax debt. To quote Hunter S. Thompson: "In a nation ruled by swine, all pigs are upward mobile — and the rest of us are fucked until we can put our acts together: Not necessarily to Win, but mainly to keep from Losing Completely."
"...imagine what the American economy would look like if families really did live within their means, spending no more than they earned."
You won't have to imagine long. Pretty soon, after the super rich finish ripping off everyone else, no one will be paying any credit card bills. That should take care of the 21 percent of monthly income spent to pay interest.
"Markets for big-ticket items--homes, automobiles, major appliances--would crash and burn. Countless businesses would go under."
Maybe if countless Walmarts, ToysR Us, BabiesR Us, junk food stands and other assorted worthless "businesses" go under, people can start their own, sans parasitic "shareholders". Maybe they could make a few bucks repairing "big-ticket items--homes, automobiles, major appliances" rather than throwing them away.
"What would happen if these buyers had to save actual cash money before they could hit the showroom? They wouldn't buy a car. Air would get cleaner..."
And co2 pollution would decrease, a matter of no small importance.
"There would only be two possible long-term outcomes: revolution, or the ruling classes would be forced to pay substantially higher wages to workers."
Economic collapse. Bring it on!
Can't buy a car? Finally force politicians to invest in public transportation.
The economic conversation demonstrate's the political impotence to save the planet from corporate destruction. The faster the corporations go, the more species may survive.
Nice chaokoh. Yep, it will be great if the Anti-American "Dream" catches the imagination of people across the USA. We certainly can learn a lot from the Cubans and so many others such as indigenous people. Check out the new documentary "The Economics of Happiness" (www.theeconomicsofhappiness.org) and the book repeatedly recommended by Readbetween, Daniel Wildcat's Red Alert! Saving the Planet with Indigenous Knowledge.
How I wish I did not agree completely. Outstanding.
Absolutely true.
And most disgusting, student debt is now higher than credit card debt.
What kind of a society not only charges their children to learn, but encourages them to go into debt to do so?
I avoid debt, and taught my kids to avoid it, but they still fall for it.
My son wanted to buy a car, and he was going to put a down payment on it, and then make payments on the rest.
I told him not to do that. He would end up paying much more for the car with interest. And the bank isn't paying any interest worth speaking of. He told me "But, Mom, I need to raise my credit rating" !
Where did he get such ideas? I told him to pay cash, and his credit rating would be fine. It just shows that the culture seeps into each citizen, no matter what their family tells them.
TR's essay nails it.
But it doesn't have to be this way.
Austerity? What utter BS!
Our privately owned (Fed) debt monetary system is rotten to the core and has been for almost century. At what point does the overwhelming stench of it make everybody as mad as hell? When will we say "enough is enough" and take our money back? When will the financial oligarchs be frog marched off to jail dressed in orange jump suits? When will the wars for profit stop?
When? It's right there in the essay:
"There would only be two possible long-term outcomes: revolution, or the ruling classes would be forced to pay substantially higher wages to workers."
Since the latter outcome will only occur when pigs grow wings, you have your answer.
Consider how strange the system is. Instead of people being given wages that are sufficient for them to buy things and support the economy, we are given credit to buy things and support the economy. And when the stock market crashed a couple of years ago and the economy tanked, instead of given people enough money to buy things and get the economy back on track, money was given to the banks which caused the problem, with the intention that the banks would lend that money out to companies to jumpt start things. But of course, the banks did not do that. So the recovery, if it is happening, is happening slowly.
The system is not designed to help people, or to help the economy in general. It is designed to help the groups which do not need it. That is why we have such an inequitable income and asset distribution.
sheepherder, I use to say a couple of years ago on this site that instead of the government giving money directly to the banks, they should have cut every working person and family in the country a treasuray check for $300K to $400K to get the economy up and running again. Many people told me straight out that I was nuts. But it seems to have worked quite well for the the wealthy, the banks and Wall St.. There is one down side to implementing this idea though. Since our country no longer has a substantial manufacturing base, the stimulus affect would be short lived seeing that most of the money the people would be spending would end up stimulating businesses outside the United States! The only way to reverse this would be for the government to go back to doing something that worked very well for the first two hundred years of our country's existence. Our government needs to go back to collecting tariffs on goods coming into this country. That also means collecting tariffs on goods that so called American companies import into this country. Ford and GM have the parts for most of their vehicles made in Mexico and China and then ship the parts to plants in America for assembly. They use to proclaim that all of their cars were built in America, now the claim is that most vehicles are assembled in America. (Check out the small print on most of their advertising nowadays) Everything that Motorola and Apple Computer sell in this country was all manufactured overseas! Any country that does not manufacture it's own goods will not have any kind of sustainable economy. So the next time you are told by a follower of Milton Freidman's that you are a protectionist and want to destroy our economy, you can proudly declare that you are all for protecting American jobs, and that you despise traitors to America and it's people as you force feed them a knuckle sandwich!
I wish I had a like button. Z1 is spot on. Look, people, if you're going to have a government and you want it to be effective, then there's no way you can continue to have these companies, chartered in Amerika but, not beholden to the laws, rules and tax codes of Amerika. I'll do the math for you all. 12 trillion (I'm being conservative) dollars divided by the approximate number of adult citizens (around 250 million) gives us 48,000 dollars. If everyone saw a check for this amount, people would've been able to save their homes, purchase new stuff and pay off debts. However, as long as most of what we could consume is from other countries, instead of the bankers hoarding that money, you'd have heard a giant sucking sound as that money disappeared to China and parts unknown.
Mercantilism (high protective tariffs and protecting local markets ability to compete) is and has been the only effective way, under capitalism, to sustain growth. I'm not touching on whether or not this is desirable, only how to effect it.
[Wikipedia alert] The Austrian lawyer and scholar Philipp Wilhelm von Hornick, in his Austria Over All, If She Only Will of 1684, detailed a nine-point program of what he deemed effective national economy, which sums up the tenets of mercantilism comprehensively:
That every inch of a country's soil be utilized for agriculture, mining or manufacturing.
That all raw materials found in a country be used in domestic manufacture, since finished goods have a higher value than raw materials.
That a large, working population be encouraged.
That all export of gold and silver be prohibited and all domestic money be kept in circulation.
That all imports of foreign goods be discouraged as much as possible.
That where certain imports are indispensable they be obtained at first hand, in exchange for other domestic goods instead of gold and silver.
That as much as possible, imports be confined to raw materials that can be finished [in the home country].
That opportunities be constantly sought for selling a country's surplus manufactures to foreigners, so far as necessary, for gold and silver.
That no importation be allowed if such goods are sufficiently and suitably supplied at home.[end Wikipedia alert]
If you are going to have a capitalist economy that actually benefits everyone in the nation, and not just the politicians and bankers, protectionism is really the only way.
The dynamics you describe are the return of the company store. GM financing its cars makes more money on the financing than it does on the car.
...And the gasoline and food prices are tearing up our budgets. http://hubpages.com/hub/High-Food-and-Gasoline-Prices
I came to this article late, and I sure wish Donna Smith was making this comment instead of me.
I wish Rall had at least referenced health care costs, Obamacare or no Obamacare.
If health care-related expenses aren't the leading cause of Amerikan family debt, they're surely close to it. And the reason they shouldn't be left out of Rall's discussion is because health-care costs expose the pious "frugality" argument for the fraud that it is.
I know more than a few co-workers who played hide-and-seek with debt collectors, or made credit-card jumping a constant pursuit to "take advantage" of the lowest APR available, etc., apparently because they couldn't resist buying bigger cars, TVs, smarter phones, etc.
But that's trivial pursuit compared to those who max out credit cards, and either take out or default on loans, because they needed to pay for health care for themselves or family members.
I understand that Rall is skewering the "frugality" bugaboo, not endorsing it. But as long as he was writing sentences like, "It could even use its power to force employers to pay workers what they deserve", he should've added "or mandated universal health care that doesn't drive ordinary unprivileged citizens into poverty and crushing debt."
OS, Thanks for pulling back the curtain to expose what is certainly an elephantine issue 'hiding' right before us. Ted Rail must be healthy and have very good insurance coverage. It covered his vision on this key aspect of the family budget.
And employers and the insurance industry 'hide it' also in reduced/stagnant wages as the cost for coverage rises.
Our family is exactly what he is talking about around the 10th paragraph. The credit card companies refer to us a "dead beats" not because we don't pay our bills, but because we don't pay interest because we don't live beyond our means. In our case it means only borrowing on a credit card (for convenience) because we just pay them off at the end of the month. We watched as friends would take on large debts so they could have the latest and best stuff like an over sized house and a couple of cars; leased. When I bought one of the first Toyota Prius cars in the US (Oct. 2000) we paid a few bucks down, got a loan on the rest from Toyota then transferred that balance to a credit card that offered no interest for one year on a loan balance transfer. Of course they were hoping we don't pay off the balance in one year, but we did. My old TV worked fine but it was big, heavy, and bulky. Wouldn't have bought a new flat screen except GW gave me that unneeded/kiss up tax refund to me so I used that just like he wanted; to stimulate the economy by buying a flat screen. And then I donated my big working TV to a local school. Which brings up one more point:
Tax deductible donations are a joke. I've been doing my taxes since I was 16 and only during the period while I had a mortgage on the house I now live in, did any of those tax deductible contributions to my son's public school, clothes to Goodwill, cash donations to numerous charities, EVER add up to enough to count as itemized deductions. It has always been clear that people with lower incomes donate a larger share of their worth to charitable causes than those who can easily afford to do so (or as I pointed out to my father one year when Bill Gates gave millions to a high school, me giving $20 to the school would be a higher percentage of my net worth). Until the tax code is changed the idea that anything is "tax deductible" is a joke for most folks and a tool for those more fortunate to have the ability of having more deductible items (especially the mortgage deduction).
So this revolution I keep hearing about in different circles, who is leading and where do I sign up?
Like most revolutions, there won't be a leader when when it starts and no clipboard with a sign-up sheet, either.
Revolutions are often spontaneous, a gut reaction to Official Government Stupidity and Greed that sends everyone into the streets. Remember Tunisia? Remember Egypt? You should since they happened just a few weeks ago.
As for "leaders" and people with sign-up sheets, they'll arrive as soon as the shooting dies down so that they can take full credit.
"Every day, families sacrifice to live within their means. They deserve a government that does the same."
This is a bizarre statement. The statement that the government must live within its means is used to imply that the government should not spend money to help those people who are struggling to live within their means. So, in effect, it is saying that because people are suffering with their required extreme frugality, they deserve a government that refuses to help them, making sure that they continue to suffer. WTF?
They deserve a government that helps them improve their quality of life, i.e., they deserve a government that taxes the rich, regulates the predatory elites, and drastically reduces the Pentagon's budget so that it can give them the aid they need. But of course they get the opposite.
Sorry... accidental post while typing.... let's try again:
Kivals you did notice that the statement was from Obama, right? (I wasn't quite sure from your comment.)
You and Rall are exactly on the same page in response to that statement.
The government does spend money-- lots of money -- to help people. However, it spends that money to help bankers, war profiteers, CEOs -- important people.
It does not want to waste money on poor people struggling with whatever. And now the political class realizes that it is going to have to fleece the Middle Class, too, in order to keep channeling money to the plutocracy.
Well, yes, I was responding to Barry, as quoted by Rall. The only problem I had with Rall was that he did not make the point I made above in addition to his other points. And you are right, in that it is even more bizarre than I stated, as Barry is making the claim that the little people, who are struggling to make ends meet, deserve a government that refuses to help them, even though that government continues to heap largesse on bankers and plutocrats of every stripe, including those in the insurance, oil, pharmaceutical, and defense industries.
The USG uses a cash basis of accounting, a method illegal for corporations which must use an accrual system of accounting.A cash basis is appropriate for a mom and pop store. If the USG used accrual accounting their would be no Federal deficit, therefore no need to borrow money to cover the debt. This is why the USG/banksters will never adopt the accrual accounting, because it's what adults do. Their is simply too much political corruption available using the cash basis of accounting.Besides the elected politicians don't know different accounting methods and any that jeopardizes their graft and corruption won't be enacted.
OMG, I love this comment! I am running this right over to my husband, the accountant. Because not even he has managed to put his finger on this and he knows his accruals vs. cash GAAP inside and out! Thank you.
Excellent comment.
"Republicans have used this "families balance their budgets, so should government" line for years. Now Democrats are doing it too. Everyone is jumping aboard the pseudo-austerity bandwagon. (Why pseudo? Neither party really wants to balance the federal budget because it can only be done by bringing home the troops, shrinking the Pentagon by 90 percent, ending corporate welfare, and soaking the rich--i.e. major campaign donors--with higher taxes.)"
Deserves repetition
Insert George Carlin video here-->>
Ever since the 1870's-and probably before-there has been some version of hire purchase, or rent-to-own, no money down, pay for the rest of life schemes to grease the wheels of commerce. It's the life-blood of consumerism. The only difference from the early days and today, is that we have so many more ways to go into debt than before. I remember a trucker who was a Teamster holding out a fistfull of credit cards when I asked him what happened to the labor movement: :"This," he said, " is what happened to the labor movement." That was in 1989- a far cry from record spinners on WWVA selling leather bound bibles with gold lettering for only a dollar down-but the principle is the same.
The writer is correct it is a bogus comparison-- Family budgets are not responsible for armies, millions of pensioners, public facilities etc nor can families tax- the U.S. government (the congress) have very different responsibilities, which they fail at- big time- because they cloud their brains with such nonsense.
Here in Canada 30% of households can't meet their monthly bills, including rent/mortgage. And 1 child in 4 officially lives in poverty.
But hey, the economy is improving... for the top 4%.
THE Quickest way to get the wealthy and the corporations pay to taxes, end military adventurism, and restore the middle class is incredibly simple. End tax deductible political contributions. Federally fund all elections.
That would make votes the only currency in our election process. Why not make politicians kiss your butt instead of GE's or Exxon's in order to get and stay elected?
Face it, you probably wouldn't vote for anyone you voted for previously unless you believe the tooth fairy put us in this mess and is keeping us there. The Skull and Bones clique needs to be fired for cause even though no one has guts enough to prosecute them. Stick it to Wall Street and K Street; END their power by taking the money out of politics.
More political parties and a wider selection of qualified candidates will be the result. No more two sides of the same bad penny, We need the change alright. We need new public servants who understand who they work for. And we need to jail those who don't.
Turn Citizens United on it's ear. Federally funded elections means no more tax deductions buying influence. That money belongs in our Treasury instead of legally gerrymandering the election process. Any attempt to financially manipulate or influence an election then becomes a federal crime instead of the dirty secret everyone knows and can do nothing about.
Even if freedom of speech allows corporate propaganda, no stockholder is going to stand still for profits being used for politics instead of dividends, or advertising budgets being used for anything other than selling their widgets, Nor should they.
What will federally funded elections buy? Democracy. Now wouldn't that be nice for a change? We owe that to our forefathers and our children.
"Face it, you probably wouldn't vote for anyone you voted for previously unless you believe the tooth fairy put us in this mess and is keeping us there."
That's kind of where I am. I am not given much of choice so I make a point of not voting for incumbents. Why should they feel secure in their jobs when I don't. Add to that I change parties every two to three years just to throw the polling figures off.
I'm quite wearied by the pronouncements of the Great Buffoonicator. Remember Obama was raised by a banking grandma and a veteran who had really nice benefits from his WWII service; when did Obama, apart from his little flirtation with discovering his roots in his early 20s, ever have to live within HIS means?
The Biggest Gov't Excess going is the money doled out to the Department of Defense in order to support the two or is it three or four wars and occupations in which we've embroiled ourselves in order to keep the corporations happy. According to the AFSC the military and security agencies are now taking nearly 60% of the national budget. Wake up Dave. Don't be suckered. Your tax dollars are not being spent on the citizenry.
If we TARGET our spending to small businesses which employ US workers, we can spend less and get the same benefit in our US economy. If we quit buying the foreign-made goods, guess where the jobs are going to be lost...in other countries (I'll leave aside the salespeople in my local Toyota dealership for the time being). Only concerted, smart consumer behavior will get the attention of the big multi-national companies.
As to credit, Rail's observations are right on. We have been on a credit card spending spree for many years. It doesn't mean that credit should not be used at all. If used carefully it can "smooth out" the economic activity as we gradually pull back. The lenders are predatory, however, especially with their fees. Their goal is to collect much more in fees (late fees, overdraft fees, convenience check fees, cash advance fees etc etc) than they do in interest. Small lenders = more benefit to the economy and less lender trickery (use local banks and credit unions)
".If we TARGET our spending to small businesses which employ US workers"
Name just a couple of those that exist today. Does this include purchasing foreign parts or ingredients, foreign production of goods? I can't think of one.
Thank you for this. What is rarely mentioned, is that the USA has perhaps the lowest taxes of the OECD nations. Certainly much lower than Canada or Western Europe. In those nations, the income tax is higher than in the USA, maybe double, PLUS the national governments have sales taxes from 8% to 20% or more. The populations of most nations do not revolt at these taxes because the whole society benefits from them, including good schools, subsidized universities, free medical, pension systems, safe city streets, etc. For their low tax rates, Americans get air craft carriers and drones attacking poor nations on the other side of the planet, usually because the people there want to practice their own religion, in their own way, in their own communities. We Americans, for some reason, cannot stand that, plus we want to loot their resources, or at least try. When will Americans ever demand that their government serve the nation? By the people, of the people, for the people....something like that.
I wonder if the United States, or any society, will actually evolve to the point of having a "brain" and acting intelligently? There is no doubt that they do not now.
Intelligent, compassionate, loving, actions by the US Congress, the military, and the corporations which control them, are non existent.... but rather are the actions of a very low life at the present. To dumb, to lazy to live.
Damn, we've come a long way to earning his respect in these past three years, wouldn't you say? I mean, we went from being a bunch of irresponsible homeowners that brought down the global housing and finance market to being people who make sacrifices to live within our means. Good consumers, is what he meant to say.
The dependence on Credit was carefully orchestrated to make Americans pay to use their own money (debit cards) and HAVE to use credit cards. I did not get a credit card until one day a store would not take my personal check because they ran me through the Credit Bureaus and I had NO credit. Not Bad Credit, but No Credit because I paid cash for everything. I was FORCED to get a credit card so that I could use Checks. I was FORCED to "establish" Credit so that I could buy a home. The American people have been forced into this system so that Corporations could profit mightily from us.
You're right. You are not considered a worthy human being anymore without one.
Truth is within most farm families at least one member works outside the farm. There are things a farm can't provide like energy and health care. Not to mention huge equipment costs. Besides most of the family farms were sold off by the big banks a few years ago. Maybe you are too young to remember that. It was a little hint of what "trickle down" economics would bring. Our farm land was sold off to huge foreign syndicates.
http://en.wikipedia.org/wiki/Farm_Aid
A well-observed article to be sure, but I wonder if it's understood that the largest portion of household debt is carried within the much-beloved middle class who somehow became enchanted by monstrously extravagant lifestyles in the last 15 years, +/-. The poor are hardly blameworthy even as a target of righteous scorn in comparison to this outwardly profligate 'upper-middle' portion.
If you consider the square footage of homes and the amenities they contain now, there has been a huge change in what constitutes basic comforts. The pressures consumers feel to keep up with their peers and to indulge their juvenile whims have shown us this facade of prosperity which is only recently dropping away. Many citizens are still slow to notice the fragments as they fall... especially those who are entirely resistant to reform.